There’s that saying in life about hedging your bets, and in trading that is definitely true for making the most of your open positions.
Of course, hedging your bets can mean accepting a pre-determined loss when the market turns, or it can be locking in a profit when your position enters the green.
The latter option is made all the more easy using automated forex trading software, and specifically via the use of tools such as take-profit orders.
What is a take-profit order?
When opening a forex position, you can implement two automated tools that will ultimately act on your behalf if you are not manually tracking the market.
The stop-loss order will close your position at a designated price, enabling you to cut your losses if the price of your forex pairs diminishes.
The take-profit order, meanwhile, is the polar opposite – this allows you to lock in that profit once your position reaches a certain price. If your investment never reaches this level, your take-profit order won’t be filled.
Should I use a take-profit order?
Let’s think about the scenario where a take-profit order is best deployed.
If we think about it, long-term traders will have ample time to manually close their positions if the value of their forex pair reaches a certain point – so, those playing the long game arguably don’t need to worry about using a take-profit tool.
However, let’s consider the needs of those for whom taking a certain profit is essential. Scalpers clearly need to use such tools to ensure that, once their profit target is met, the green number is locked in. That also applies to day and swing traders – at times of volatility, particularly at the start or end of a trading session, automation is simply more efficient than manually clicking the ‘close’ button.
So, if you engage in trading strategies where every single pip of profit is essential, you should almost certainly be using take-profit in your trades.
Where can I use take-profit?
The best trading software, including MetaTrader and WebTrader, enable you to use automation like take-profit.
Most brokers these days offer MT4 or its newer sibling MT5, and so most traders will have access to such tools when they join a respected broker – read an EverFx review for one such example.
The advantages of take-profit
The main advantage of a take-profit order is self-explanatory – it eliminates your exposure to risk should a profitable position then face a downturn.
Take-profit also removes the temptation to speculate – yes, your profit may rise yet further on a winning position, but the forex market is volatile and can quickly turn against you.
To become a successful trader in the long term, you need to make your money with profitable trades – that’s a given. To maximize your chances of achieving that feat, clearly take-profit is an excellent helping hand.
These automated tools remove the emotion and psychology from trading. You don’t have to worry if you’re doing ‘the right thing,’ because your software has already executed the closing trade on your behalf.
That feeds into the main drawback of take-profit – the fear of ‘what might have been.’ Yes, your take-profit order may close a trade when there’s more profit to be eked out, but would you rather gamble on a further upward rise – and remember, even the most technical of traders are employing some guesswork – or lock in a guaranteed profit to enjoy?
In conclusion, the question is not whether you should use the take-profit tool or not. It’s why haven’t you started already!